Public Option Shows Signs of Life

All but declared dead over the summer, the idea of a public health-care option is suddenly gaining support in Congress

Not long ago, as attention centered on the Senate Finance Committee's moderate health- care reform bill, pundits dismissed the idea of a publicly run insurance program to compete with private insurers as all but dead. Now, as Senate leaders are close to merging that bill with a more liberal alternative passed earlier in the summer, the public option—a sort of Medicare for the masses—appears to be making a comeback.

In one sense, it's small surprise: While the Finance Committee explicitly rejected the public option, some version of the idea featured prominently in other major reform bills pending in the House and Senate. The Senate is expected to come up with its merged bill in the next week or so, and the House will deliver its own unified legislation soon after. Then the real jousting will begin.

Andy Laperriere, a policy analyst for International Strategy & Investment, has said for weeks that a public health plan remained on the table. "The base case has been that there isn't going to be a public plan, but it remains a real possibility," he says.

Less clear, however, is just what shape the public option may take and how extensive it will be in any final legislation to pass Congress. "What will materialize is likely to be some sort of plan that both puts some pressure on insurance companies to compete, but isn't seen as a real threat to insurance companies," John Shepard, a policy analyst with Concept Capital's Washington Research Group, wrote in a recent report to investors.

polls show increasing popularity

Support for the concept generally runs strong among Democrats in Congress and with the public as well, some polls suggest. A Washington Post/ABC poll published on Oct. 20 found that support for a public option has increased since the summer, with 57% of all Americans now favoring a public insurance option and 40% opposing it.

House Speaker Nancy Pelosi (D-Calif.) has said she can count on some 200 votes and expects to get more. (She needs 218). President Barack Obama has long backed the idea, though of late his aides have made clear it wouldn't be a deal breaker if the bill that finally reaches his desk doesn't contain a public plan.

The Senate is another matter. Practically speaking, Democrats must deliver all 60 of the party's votes in the chamber or recruit moderate Republicans to overcome the risk of a filibuster or other procedural maneuvers. Senator Olympia Snowe (R-Me.), the lone Republican so far to vote for any of the pending bills in committee, has balked at supporting a government-run plan without significant strings, such as a trigger-activated plan. And conservative Democrats are under intense pressure to vote against a public plan, thanks to enormous opposition from health insurers and other medical providers, as well as business lobbies like the U.S. Chamber of Commerce and the National Association of Manufacturers. Many also come from red states—or traditionally Republican Congressional districts—where opposition to an increased government hand in health care runs strong.

But a public plan could come in many flavors. On the aggressive end, Pelosi favors a "robust" version—a full-fledged government-sponsored plan that competes head-to-head with private-sector plans and pays hospitals and doctors 5% above Medicare's rates. Insurers hotly oppose such an idea. Among other problems, says Karen Ignagni, the head of America's Health Insurance Plans, the industry lobby, it would "bankrupt the hospital industry." She argues the measure would also cause hospitals and doctors to shift costs for which they weren't reimbursed over to private insurers, forcing them to raise their rates.

maneuvering for maximum leverage

On the other end of the spectrum, a more limited public plan would come to life only if it were "triggered" in a few years if current reforms don't lead to increased affordability or access to health care. That's the idea Snowe has proposed—and one which many analysts have assumed would be included in the final reforms, at minimum, in order to keep her on board. But health reform advocates and more liberal Democrats warn that the trigger approach could prove nearly useless.

Still, those options leave a lot of territory in between. Fiscally conservative Blue Dogs in the House say they'll consider a public option, but only if the government plan could negotiate rates with health-care providers, much as private-sector insurers do. That would lead to much higher reimbursement rates than if the public plan paid a fixed rate based on Medicare fees. "There's enormous concern that a public option combined with Medicare rates will really harm health-care providers in certain parts of the country," says a key adviser to a leader of the Blue Dog coalition. "The savings achieved through below-market rates would eviscerate the health-care structure."

Another proposal under consideration would let individual states decide right away whether to offer a public option, rather than making it a mandatory federal choice. They could either craft their own plans, as long as they met certain guidelines, or subscribe to a program run by Uncle Sam. Or nonprofits could get federal help setting up cooperatives to offer insurance where the market stumbles. Senator Maria Cantwell (D-Wash.) has raised the possibility of letting states create a basic health plan for residents who don't qualify for Medicaid, but still fall below certain income thresholds.

Ultimately, of course, the bills voted on in Senate and in the House must be reconciled. That means much of the current, very aggressive positioning over the public option is maneuvering to gain the most leverage in those final negotiations between the two chambers. And, short of a victory, starting out with a strong position should help lawmakers who ultimately lose out persuade their supporters that they pushed hard for their priorities and secured the best possible compromise. That, far more than the possibility that a robust public option is likely anytime soon, explains why the House bill Pelosi is shepherding through will so heavily favor the idea.